Manhattan construction loans fall in 2008

A little-known bureaucratic filing provides further evidence that lending and construction have slowed in Manhattan.

The
number of building loan agreements filed in Manhattan fell by 20
percent in 2008 to the lowest level in a number of years, as lenders
pulled back the reins on construction spending.

The quantity rose to 436 in 2007 from 393 in 2005, before declining
sharply to 350 in 2008, the lowest level in at least four years,
according to data The Real Deal obtained from the County Clerk of New
York County.

In the fourth quarter of 2008, the number of loans filed fell by 24
percent to 67, when compared to 89 filed in the fourth quarter of 2007,
the data showed.

“Right now a lot of people will only make
construction loans for a project that really makes sense with a strong
sponsor,” said Richard Nardi, a partner specializing in commercial real
estate at law firm Loeb & Loeb.

However, the slide was not as pronounced as many expected, as loan
agreements continued to be filed for buildings in the borough even
during the fourth quarter.

“I suspect looking at 2009, that is when you will see an amazing drop-off,” he said.

Building loan agreements are generally filed as the construction
loan is closed, regardless of the size of the loan, to record what
money is available for so-called “hard” construction costs like
contractors and suppliers. It does not include “soft” costs like
architects and marketing, real estate attorneys said. The Real Dealreported in October that only three new building permits were filed in
September 2008.

Real estate experts suggest a number of possible explanations for the
relative strength in loan filings when compared to the New York
economy, including the lag time between when a deal was negotiated and
when the loan was closed.

Sheri Chromow, senior partner in the real estate group at Katten
Muchin Rosenman, suggested the 421a tax incentive induced developers to
secure funding when they might otherwise have waited.

“So maybe
it was a little higher than it might have been,” she said. “But I did
not have the sense there was this much activity, so I guess I would
call it a pleasant surprise that it is still happening.” She added that
funding remained relatively easier to obtain for deals under $50
million.